Retail Employment Declines Ahead of Holiday Season

Retail employment experienced a significant drop of nearly 40,000 jobs in November, raising concerns about the upcoming holiday season. The Bureau of Labor Statistics reported a loss of 38,400 jobs in the retail trade industry, with department stores taking the hardest hit by losing 19,000 jobs. Furniture, electronics, and appliance retailers also saw a decline in employment.

Becky Frankiewicz, President and Chief Commercial Officer of ManpowerGroup, noted that holiday hiring started later than usual and is now showing a more subdued finish. Typically, there is a surge in hiring during the holiday season, but this year has been unusually moderate.

This downward trend may not come as a surprise considering the retail sector has been cutting jobs for the past few months. In fact, this year has seen the fewest seasonal hiring announcements in a decade, according to employment firm Challenger, Gray & Christmas.

However, this report is not good news for investors in the retail sector, especially so close to the crucial holiday season. Citi economist Veronica Clark emphasized that weaker seasonally adjusted holiday spending may result from the lower-than-expected hiring of seasonal workers.

There are a few reasons behind this slowdown. One factor is that consumers are increasingly shifting their holiday shopping online, leading retailers to reduce their hiring of in-store personnel. Consequently, logistics and delivery positions should theoretically increase. However, the labor market has been highly unconventional in recent years, and employment in transportation and logistics actually shed 5,000 jobs in November following a decline of 12,400 jobs in October.

Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, explained that despite increased consumer spending—particularly online—employers who typically ramp up their workforce during this period are not hiring as many employees as expected.

Overall, these figures indicate that the retail sector may face a challenging holiday season due to reduced employment opportunities and potentially weaker consumer spending.

The Impact of Rising Labor Costs on Holiday Hiring Plans

The rising cost of labor coupled with the expectation of a slowdown in consumer spending is affecting retailers' holiday hiring plans. According to Challenger, hourly wages for all employees grew by 0.4% in November, which may discourage retailers from being too ambitious with their hiring efforts.

What makes this deceleration particularly notable is that hiring remains strong in other service-industry jobs. The hospitality and leisure sector added 40,000 jobs last month, primarily in restaurants and bars. This shift in spending towards experiences rather than durable goods has contributed to the sector's growth.

However, there are crucial differences between the retail and hospitality sectors. One key distinction is how quickly they were able to restore their employee base to pre-pandemic levels. Despite facing a labor shortage, the retail industry achieved pre-pandemic employment levels in February 2022. On the other hand, the total number of employees in the leisure and hospitality sector is still slightly below its pre-pandemic figure in February 2020.

D.A. Davidson analyst Michael Baker notes that the current trend of retail lagging behind total nonfarm payrolls is reminiscent of the period before the pandemic. This pattern persisted for 71 consecutive months before June 2020.

Despite slower retail hiring, overall job growth has been fairly decent. The unemployment rate dropped from 3.9% to 3.7% in a month, and wages have increased by 4% over the past 12 months. This positive trend suggests that consumers may feel confident enough about their financial situation to continue spending during the holiday season, even if retailers remain cautious.

In conclusion, while rising labor costs and an anticipated slowdown in consumer spending impact retailers' holiday hiring plans, there are signs of optimism. The steady job growth and increased wages indicate a potentially strong holiday spending season, supported by consumers' financial well-being.